Gambling: money and statistics

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No, I’m not going to write about the morality of gambling.* I’ll save that for another post. This is about money. And numbers.

I attended the OLG four-community presentation in Wasaga Beach, Tuesday, and it got me thinking about what gambling means to the economy, what it means to the government, what effect it might have on things like growth and recession. It also made me wonder how governments became addicted to gambling revenue, but that, too, is for another post.

I also found some of the statistics presented interesting enough to do some extrapolation, which I’ll get to at the end.

What does gambling contribute to our economy? Well, the OLG and the province always like to tout the benefits: the OLG paid more than $2 billion profits into provincial coffers, in 2011. They’ve given more than $34 billion since 1975. That’s an average contribution of $149 per person in the province per year. OLG’s plans are to build that payment to the province up to $3.3 billion by introducing more and newer forms of gambling.

On a very basic level, that looks good. After all, at least some of that money would have had to come from taxes instead, so it can be seen as a user-pay system, or a self-tax system. Of that $2 billion last year, $120 million went to the Trillium Foundation, $10 million for Ontario Amateur Sport, and $41 towards problem gambling programs.

That’s an interesting ratio: four times the amount given to develop sports is given to treating the problems created by gambling. A point not missed by the audience.

The OLG made that profit from revenue of $6.685 billion. That’s a far more intriguing number. It’s just over one percent of Ontario’s GDP in 2011. As a former business owner, seeing a 33% profit margin is impressive. Extrapolating, it suggests OLG plans to increase net gambling revenues to almost $10 billion if the ratio remains the same. It will do this by expanding gaming sites, adding internet gambling, allowing bingo halls to run more games – making more gambling available to more people more often.

That doesn’t sit too well with me. The same people who won’t let grocery and convenience stores sell wine and beer because it might corrupt someone, will make gambling so ubiquitous it will be hard to avoid tripping over a slot machine (real or virtual). Online gambling will offer easy access, 24/7 from your home. Play in your jammies until the early hours. All you need is a credit card. Makes me wonder if the goal is to make gambling mandatory some day in the future, like taxes…

What happened to the rest of the money the OLG took in?

According to the OLG’s annual report, operating expenses were $4.975 billion. Of that, $1.835 billion went to payouts to lottery and bingo winners. Commissions ($648 million – this, I assume, was paid to operators ), marketing ($300 million – the amount paid for advertising is 7.5 times the amount paid to help problem gamblers), interest ($32 million), payments to the federal government ($228 million) and amortization ($226 million) gobbled up another 1.43 billion. Paying for the OLG and its 18,000 employees is one of those expenses. Six thousand of those employees got bonuses, too – $11.6 million worth. Not a large slice of $4.7 billion. Horse racing got $345 million; host municipalities got $92 million and First Nations got $117 million.

It almost looks like the OLG is on a drunken giveaway spree, handing out the bucks to everyone except, of course, the gamblers. Nice of them to give us back some of our money, though.

Who doesn’t want to get free money? That’s the attractiveness of hosting a casino: all you need to do is nod your head, zone some land, then sit back and watch the money roll in. Suddenly flush with cash, the town’s taxes plummet, everything gets rebuilt, new sports facilities sprout, downtown gets renewed, sidewalks rebuilt, streets paved with gold and the local politicians get halos.

Well, maybe not.

As an aside, based on media stories, all three seem worried that their slot machines will be removed from the tracks when the agreement ends, sometime in the next year.

The OLG presented the audience with examples from Hanover, Central Huron and Chatham-Kent: all three communities have an OLG money machine in a racetrack. Hanover has 130 slots; Clinton (Central Huron) has 123, and Hanover (Chatham-Kent) 130. All three are currently questioning whether the slots will remain in their raceways with the OLG’s new strategic plan. In 2011, Hanover received about $800,000; Central Huron $641,000 and Chatham-Kent about $700,000. Exuberant endorsements from their mayors, we were told.

Assume we could get, say, $1 million per year as a host community. That translates to just over 2% of our annual municipal budget. Minus, of course, what we would pay to our neighbours as per the memorandum of agreement we signed. We might end up with 1% of our budget as “free” cash. Does this mean your taxes won’t go up? Nope. The extra money would likely end up going to infrastructure improvements and maintenance required by the extra traffic, maybe to extra policing costs too.

Even if we kept it all for ourselves (as one councillor has suggested), and damn the rest of the region, is that money enough to make us want a casino? If I’m going to sell our municipal soul, I think I want a bigger slice of that pie for the town. As Faustian agreements go, we’re not getting much from our side of the bargain.

Besides, we might think we’re agreeing for “just” 300 slots, but the OLG said it could expand the site’s licence to other games anytime in the future. The demographics change when you have other types of gambling, but I didn’t hear anything to suggest the town will have a say in that expansion.

If the cash doesn’t move me, the opportunity to create 80 to 90 jobs in the area is more attractive. Any job creation is welcome, but I get an uneasy feeling these aren’t the “quality” jobs some folks are expecting.

From what I understand, many of these jobs would be similar to what the hospitality industry already offers – janitorial, serving, cooking,security, valet parking, landscaping, counting cash. Whether these (non-union?) jobs would pay better than the hospitality sector or offer any benefits would be up to the private operator. They aren’t government jobs: the OLG won’t be running these new casinos.

Will a private operator pay more than $10-$12 an hour for someone to sweep the floor and polish the slot buttons? I wouldn’t expect so. Any new jobs are better than no jobs, but my passion to create more McJobs is somewhat less. Would you like fries with those casino tokens?

Back to the money.According to the OLG, the net revenue from adults to the gaming industry in Ontario is $459 per year. Doesn’t seem like a lot, but that’s money that doesn’t go directly into the economy – it doesn’t create jobs outside the gambling sector. It doesn’t buy anything from local merchants or restaurants. It goes directly to the government. Well, okay, two thirds goes to the OLG and its minions, and the remaining third gets into public coffers.

Most economists measure consumer spending as a yardstick to whether we are in or out of a recession – it’s called the consumer confidence index. See here for the Canadian index. It’s a simple measure of consumption – consumers who are confident in the state of the economy buy more stuff. Recessions happen when that confidence falls to a point where we stop buying and start hoarding (okay, it’s one reason; there are others, but it’s a big part of it).

A strong consumer confidence report, especially at a time when the economy is lagging behind prevailing estimates, can move the currency markets quickly. The idea behind consumer confidence is that a happy consumer – one who feels that his or her standard of living is increasing – is more likely to spend more and make bigger purchases, like a new car or home, leading to a stronger domestic economy and consequently a stronger currency.
Source: www.investopedia.com/walkthrough/forex/advanced/level8/consumer-confidence-index.aspx#axzz29kZLXgcV

Is gambling measured as consumption? Does the money pushed into slots contribute to the level of confidence? Is gambling measured in the index? I can’t find anything online to suggest that it is. So rather than spending that $459 on, say, a new TV, a shelf of books, a library of DVDs, new skates, skis or a bicycle, a purebred puppy, teeth whitening or any other goods and services – this money is spent on gambling. It bypasses the usual consumer channels. Gambling doesn’t add to the consumer confidence, even though the money is still flowing out of consumers’ pockets.

Yes, there is trickle down and spin-off – some of the money goes to suppliers, some to wages – and thus some gets back into the general economy. But how much? How much just ends up fattening the bank accounts of the operators? I don’t know, but clearly it’s not as beneficial as if it were all spent in a retail store.

Would $6.7 billion have a positive effect if it was spent in retail instead of gambling? Of course, but overall not as much as you might imagine. It’s about 4% of Ontario’s total retail sales (2011 figures). So it would help, but wouldn’t change the world. A few hundred people spending an extra $459 each every year in a local business could make a real difference to the local economy.

As a personal choice, I’d rather buy that shelf of books from local bookstores than pump quarters into a noisy metal machine and walk away with nothing. At the end of the day, I will have something to show for my money, not to mention many more months, even years, of enjoyment from the books.

It strikes me that putting the money directly into the economy helps buoy consumer confidence (thus the economy) better than spending it on gambling, and it might help keep us on the farther side of a recession. The OLG’s own statistics show that Ontario’s gambling revenue didn’t seem significantly affected by the last recession, so gamblers apparently don’t seem to feel the need to hoard as much as consumers when the economy tanks.**

Let me wind up with some thought on statistics. According to the OLG’s own estimates. 3.4% of Ontario residents have a “severe or moderate” gambling problem. In Problem Gambling in Canada (see footnote), the authors quote a 2005 study of Ontario residents by Wibe, Mun and Kauffman, that has a higher number: 5.8% are “at risk of gambling problems,” 2.6% have “moderate problems” and 0.8% have “severe problems” (the latter two combine to make the 3.4% OLG mentions).

We have around 21,000 people in Collingwood. At 3.4%, we expect to have more than 700 people here with “severe or moderate” gambling problems. Another 1,218 (5.8%) are “at risk”. That’s about 2,000 local adults for whom gambling is or may be a problem. These are your friends, relatives, neighbours. That concerns me. These are the people most likely to be found in a casino that’s in our back yard – especially during the week when there are fewer visitors.

We have about 16,000 adults 18 and older here. That means about one in every eight adults who may have or who have a problem with gambling. If the government was to allocate funds to problem gambler programs by that percentage, they would have to spend more than $250,000,000!

Add in about the same number of people from Wasaga Beach, and more from Clearview, Springwater and Town of the Blue Mountains, and we have more than 5,000 people in our immediate vicinity who either have or are at risk from gambling problems. That’s a lot of people in our region who may find a casino an irresistible place to spend their money.

I just don’t see 5,000 people lining up at the problem gambling office to voluntarily disbar themselves from the irresistible urge to push quarters into that hungry metal mouth, while others shove past them to get at the seats they vacated. I guess they’ll still be able to enjoy the province’s online gambling sites, when they are launched. The government may not want you in the casino with your bad habits, but it still wants your money, and won’t even mind if you play in your jammies.

~~~~~

As you might gather from the above, I am less than enthusiastic about having a casino here. I’m still open to debate and to having my mind changed, but it has to be a lot more compelling an argument than what I’ve heard to date.

* In the book, Problem Gambling in Canada (Tepperman and Wanner, Oxford University Press, 2012), gambling is identified as a learned behaviour; like smoking, like watching TV, playing sports or reading. Adults often become gamblers because of how it is portrayed in family or social situations. Because gambling is legal, it gets advertised in mass media, making it appear on the same level as consumer goods and entertainment, banks, and music concerts. From buying lottery tickets to trips to Las Vegas, how gambling is perceived in the home affects how children will develop as adult gamblers; just as children brought up by smoking parents are very likely to become smokers themselves.** While this was also noted in the UK, in the USA, the pattern seems different. Overall the US gaming industry lost about 5.5% revenue during the recession, with New Jersey reporting a 13% drop from casino revenue. How much of that was caused by an increase in online gaming or in the general increase in gambling opportunities as more and more states legalize it, is unknown. Also, the US was hurt more by the recession than was Canada.

5 Replies to “Gambling: money and statistics”

Thank you for your thoughts. I just would like to educate you and your readers a little further on the money horse racing “got”. Here is a link to a document I composed to explain how the 20% (or $345M) was derived.

Even though I live on the other side of the border, the problem is the same and is why I refer to it as the “Stupid Tax” in that it is the stupid people who spend money to support the gaming industry and fail to realize the very limited return on their money.
In Georgia, the ruse for the lottery is that some of the profits are being spent on education. Except that the undaunted and their children are paying to educate the smarter people who DON’T play the lottery. (Did I mention that it is the “Stupid Tax?”)
And like all addiction such as the alcohol and cigarettes also sold in the “convenience stores” that sell lottery tickets, there is a habituation that comes with that convenience.

The “solution” to the problem may come in terms of the “return on the investment” for gambling revenue. (I am a firm believer that economics drives morality.)

Economic wealth of a 21st Century society comes from mass production of goods and services and the multiplier effect of mass consumption. War is no longer a “good investment” (unless you are the Taliban trying to bring an authoritarian economy back to 12th Century economics). “Trickle down” economics no longer works because the consuming masses can generate more wealth and sales (see the iPhone) than the upper 1% of the economy can by extravagant living.

So the question becomes: Can the total wealth of society be increased by skimming money from people who are gullible enough to waste it on gambling? Or does the percentage of gross profits that are going to the operators of the gambling organizations, and the social/financial harm they cause to gamblers, overwhelm any financial benefits that such government sanction operations provide.

And while additional arguments can be made that illegal gambling causes more harm than “legalized” gambling (such as what happened with the US attempt at “prohibition”), my personal feeling is that there needs to be a “Scarlet Letter” such as a “G” emblazoned on the foreheads of gamblers as in G for gullible.

Either way, the problem boils down to the Law of Nature in that you can’t legislate against stupidity, and it is very difficult to regulate it.

Thanks, Alan. I agree: you can’t legislate stupidity, nor can you legislate people to be resonsible, caring, alert, attentive, wise or skeptical. People will always make mistakes, make bad choices, waste money, and inevitably choose the glistering bauble over the mundane but practical widget.
Lots of questions in your comment, and I have no answers, but I think we share the same level of discomfort over the way governments have created a massive bureacracy around gambling. Like the bread and ciurcuses of ancient Rome, without the same share of bread.
Much of the money from gambling here is fed back into the provincial health care system. That makes it acceptable to some, but I am uneasy that we have become dependent on gambling for scoail programs.

Diego’s Quotes

"No humane being, past the thoughtless age of boyhood, will wantonly murder any creature which holds its life by the same tenure that he does. The hare in its extremity cries like a child. I warn you, mothers, that my sympathies do not always make the usual phil-anthropic distinctions."Henry David Thoreau, Walden, Ch. 11: Higher Laws